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I just have one question to all the resource commodity bears.

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Super Contributor
Who is going to produce them at lower prices?
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76 REPLIES 76
Not applicable
those that still make a profit from producing them at lower prices?
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Valued Contributor
and after a few biggies go bust and supply goes down prices can go higher
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Super Contributor
Yes sure China is going to rely on the small producers that are unable to compete with the big guys to supply their hungry dragon.
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Not applicable
i think your misunderstand economics, its dynamic.
When prices get low and theres demand people step in again, prices go to high demand falls.
If it wasnt dynamic we would still be trying to figure out how to improve horses to help us travel.
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Super Contributor
The fact of the matter is China still need a lot of commodity resources to power their growth. If there is no one producing them because the price is too low for them to survive then the prices must go up or the Chinese hungry dragon will die.
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Super Contributor
China must learn not to kill the hand that feeds it.
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Not applicable
what if you have it the wrong way round?
What if the low resource prices are powering their growth?
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Super Contributor
This is a circular discussion, who is going to supply them at prices no one can supply them at enough to meet their needs?
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Super Contributor
Let me tell you this though, share prices are far undervalued. DRD should be over R10 per share at this rand gold price. Kumba should be over R100 at this rand per ton iron ore price. Billiton and Anglo should also be much higher. I think the traders are trying to mop up the uninformed.
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Valued Contributor
gvv, you may be right but right now your view is losing money and that the wrong side of the market to be on ..
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Super Contributor
That's the problem with you youngsters you only want to be in the green and are not prepared to go into the red to pick up cheap stock. Then you sell if you are making a loss and then get no where. You need all the luck in the world to always stay in the green, at some times the courage of your conviction will be tested so you can pass or fail accordingly. It's not how much money you make that counts it's how you make it.
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Frequent Contributor
Question: If I accept that commodity prices (iron, copper, platinum etc) will recover only after some of the miners go under. Which ones are most likely to go bust in your view? Glencore, Anglos, Lonmin?
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Super Contributor
Basically what you are asking me where should you invest your money. That is a decision you must make by doing your homework first and then sticking to that decision through thick and thin. No one knows what is round the corner, for example did you know Zuma would reelect Gordon over the week end. What makes you think the world will not resume the consumption of resources again?
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Super Contributor
G V V , i have already taken up my positions in KIO. As far as i am concerned this scenario represent an interesting economic reality. The pressure is starting build for Rio Tinto who have recently cut back on Capex expenditure. I am prepared to sit in the red and give this investment time to grow.
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Not applicable
Production cost is not the only factor of the equation. Australia produces more, ships for considerably less, and is much more mechanized than us. SA miners have to maintain a certain level of production to keep their mineral rights (I think?), and they have to maintain cash flow to pay off the substantial loan accounts. Most mines are measured on an ROA model - and the key to ROA is life of mine and production volumes. If volumes drop off, it implies a permanent shift on the shelf life of the asset. This is why Lonmin is such a risky investment - they can't meet the installments on their loans, and can't cover costs, so raise capital.
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Super Contributor
I don't think we have to wait too long, I would not be surprised if this whole resource downturn was fabricated by the big shareholders with the aim of selling from the top down and buying back their shares through a rights offer. They create a scare in partnership with the CEO's to restructure the company, in the end it costs them nothing the only ones who suffer are the ones who sell out at a loss. That is why it's important to average down your cost price as the market comes down and then to wait for the right offer to par the share price which will make the concept profitable.
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Super Contributor
As I told Preston in the above comment, it's all fabricated to make a profit from the shareholders who have no clue what's going on.
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GEM
Occasional Contributor
Haven't contributed here for years but my 2 cents worth suggests that Glencore will survive easier than the others! Simply that their core business is TRADING commodities, of which they are experts in. Doesn't matter what the price of the commodity is, they are making a decent margin. They made the mistake of purchasing Xstrata at the peak of the commodity cycle for which they have been punished. Their trading of commodities will and is still profitable, they will reduce their debt quicker than other commodity companies and come out rosier at the end of the day. To me Glencore is the best buy in the sector.
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Super Contributor
Many of the producers are in socialist regimes that compel them to produce at a loss (South Africa, Zambia) or engineer input costs (China) . Others are state owned entities in despotic regimes that have hardly any cost structure compared to Western companies. These produce a "profit" regardless (Venezuela, Saudi Arabia.) Some will take any cash flow to support their economies (Western African countries, Chile.) These prices are real! Only marginal demand (or supply) matters since dynamic systems are priced "at the margin." So - prices will turn when dynamics change - whenever that may be; and it will be sudden!
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